EU ruling on Apple calls for US tax reform

WASHINGTON: A European Commission order requiring Apple Inc to pay Ireland $13 billion euros ($14.5 billion) in unpaid taxes on Tuesday drew swift rebukes from the Obama administration and lawmakers in Congress, while reigniting calls for US tax reform.

The White House and the Treasury Department, which enforces federal tax policy, warned that US-EU economic relations could be affected by the European Commission's ruling that Apple had received illegal state aid under its agreement with Ireland.

Business groups protested. The Business Roundtable, which represents US chief executives, called the decision "an act of aggression" against a law-abiding US company and a sovereign government.

Members of both parties in Congress pointed to the stunning decision as evidence that the US tax code should be rewritten to give American companies an incentive to bring home some $2.1 trillion in US corporate profits held abroad. But there was no sign that lawmakers were any closer to bridging the substantial divides that have prevented agreement up to now.

"Above all, this is yet another reason why we need to fix our tax code," House Speaker Paul Ryan, the highest-ranking elected Republican, said in a statement. "Today's decision should be a spur to action."

Apple was found to be holding over $181 billion offshore, more than any US company, in a study published last year by two left-leaning nonprofit groups: Citizens for Tax Justice and the US Public Interest Research Group Education Fund.

"This is yet another example of why we need to reform the international tax system to ensure these revenues come home," said Senator Charles Schumer, the chamber's No. 3 Democrat.

Even the European Commission voiced indirect criticism of the US tax code, suggesting that Washington could require Apple's Irish operations to pay larger amounts of money to the US parent to finance research and development, which would increase Apple's US tax bill.

Former Senator Carl Levin, a Democrat whose investigation of US corporate tax avoidance was cited by European regulators, blamed the US Internal Revenue Service for failing to challenge Apple's overseas arrangements.

Republicans and Democrats in the Senate have discussed plans to encourage the repatriation of US profits abroad.

But House Republicans hope to move broader legislation next year that would cut the US corporate tax rate from 35 percent to 20 percent and adopt a "territorial" system that would exempt the overseas earnings of US companies from US taxation. Democrats have dismissed that as a massive tax giveaway.

Other critics in Washington warned that Tuesday's European Commission move would encroach on US government jurisdiction and ultimately add to the federal deficit.

"We are concerned about a unilateral approach ... that threaten(s) to undermine progress that we have made collaboratively with the Europeans to make the international taxation system fair," White House spokesman Josh Earnest told reporters.

US Representative Kevin Brady, Republican chairman of the House Ways and Means Committee, called the decision "a predatory and naked tax grab".

Apple and Ireland said they would appeal the EU decision. But some analysts said the ruling, if upheld, could change the calculus that has kept US corporate money overseas if it means higher taxes in low-tax European countries like Ireland.

"The scheme of US multinationals parking money offshore indefinitely, taxed at zero, may be coming to an end," said Steven Rosenthal of the Tax Policy Center research group.

Online retailer Amazon.com Inc and fast-food company McDonald's Corp already face probes over taxes in Luxembourg, while coffee chain Starbucks Corp has been ordered to pay up to 30 million euros ($33 million) to the Dutch government.

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“There will be a new brand identity — work has started on it,” a senior consultant working on the merged company’s new identity said, speaking on the condition of anonymity due to non-disclosure agreements.